An letter of intent is like extending a hand for agreement.
In the business world, many legal and financial risks are best put in writing. Two documents people use frequently in business include a Notice to Proceed and a Letter of Intent. People sometimes confuse these documents because they both signal that an agreement of some kind has been reached between two parties. When a person examines these documents closely, however, the differences become apparent.
NTP Definition
Businessdictionary.com and the U.S. Army Corps of Engineers define a NTP as a notice that authorizes an individual to proceed with work for a project. The NTP states the date that the individual can start so that the project time frame is clearly indicated.
LOI Definition
Businessdictionary.com, investorwords.com and thefreeopendictionary.com explain that a LOI is a document that demonstrates a willingness to do business. It doesn't authorize work, but rather shows that there is the potential for a work, product or investment agreement.
Uses
A LOI typically is used during business mergers or acquisitions, according to Investorwords.com. People also use it to show they're willing to invest financially. In contrast, a NTP typically is used in construction and authorizes contractors to start building or doing related work.
Contract Relationship
A NTP defines the date that a contractor can begin to work, with the contract performance time beginning at the NTP date. This establishes a link between the NTP and the legal contract signed by both parties. An NTP thus may be legally enforced. This is the primary difference between a NTP and a LOI from the legal standpoint. LOI is not a legal contract. It cannot be enforced because it merely shows interest and doesn't always define concrete terms. An LOI thus is much less formal than a NTP. In fact, a LOI doesn't have to be for business at all.
Inter-relationship
People can use LOIs and NTPs. For example, a business owner could purchase office space that needs renovation. He might send a LOI to a construction company to show that he is interested in signing a contract with that company and to detail the kind of work that's necessary. The business owner and the construction company then could strike a deal for the work and draw up a contract. Once the business owner has all the proper documentation and funding, he could send the construction company a NTP to make the contract active and let the contractors start renovating. A LOI usually proceeds an NTP.
